India's Unified Payments Interface (UPI) will continue to remain free for person-to-person transactions, but select high-value merchant payments will attract a Merchant Discount Rate (MDR) from October 15, 2026, according to the Ministry of Finance.
The new framework will have no impact on P2P transactions, regardless of the amount transferred. Payments to merchants up to Rs 2,000 will also remain free. The government said around 96% of P2M transactions will remain unaffected.
MDR will apply to specified person-to-merchant (P2M) transactions above Rs 2,000 at a rate of 0.4%. For transactions of Rs 75,000 and above, the charge will be capped at Rs 300 per transaction.
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Importantly, MDR is not a tax or a fee collected by the government or the National Payments Corporation of India (NPCI). The Ministry said the charge will be distributed among participants in the payments ecosystem, including banks, payment service providers and UPI application providers.
What Will Remain Free?
All P2P UPI transfers, including sending money to family and friends or transferring money between one's own accounts, will remain free.
P2M payments of up to Rs 2,000 will also carry no MDR. Small merchants covered under the P2PM framework, including vendors receiving up to Rs 1 lakh a month through UPI QR codes, will continue to enjoy zero MDR.
The government has also clarified that consumers will not be charged MDR at the time of making a UPI payment. UPI apps will not be permitted to impose platform fees or hidden charges.
“No, UPI services will continue without any cost to consumers. Consumers can continue to transact free-of-cost using UPI as they have been doing till now.”
Where Will MDR Apply?
For a regular merchant transaction above Rs 2,000, MDR will be charged at 0.4%. A Rs 3,000 payment, for instance, would attract an MDR of Rs 12, while a Rs 50,000 transaction would attract Rs 200.
For payments of Rs 75,000 and above, the charge is capped at Rs 300. So, a Rs 1 lakh merchant payment would attract Rs 300 instead of the Rs 400 that a straight 0.4% calculation would produce.
Certain essential and thin-margin sectors will have a flat MDR of Rs 5 for transactions above Rs 2,000. These include railways, telecommunications, insurance, fuel and agricultural inputs.
Proposed UPI MDR
Amount paid to Merchant | Applicable MDR | MDR paid by Merchant |
Rs. 2,000 | Nil | Rs. 0 |
Rs. 3,000 | 0.40% | Rs. 12 |
Rs. 50,000 | 0.40% | Rs. 200 |
Rs. 75,000 and above | Fixed Rs. 300 | Rs. 300 |
Small Merchants Protected
The framework provides a separate zero-MDR treatment for small merchants under the P2PM category. Merchants receiving up to Rs 1 lakh a month through UPI QR codes will remain protected from MDR.
The government said existing QR codes will continue to work and small merchants will not have to replace or re-register their QR infrastructure.
If a merchant's UPI collections exceed Rs 1 lakh a month consecutively for three months, the merchant can be transitioned from the P2PM category to the P2M category.
Current MDR for Digital Payments
Payment Mode | Current MDR |
Credit Cards | 1.5% |
Debit Cards (Above Rs. 2,000) | 0.9% |
Debit Cards (Below Rs. 2,000) | 0.4% |
UPI > Rs. 2,000 (P2M) | 0.4% - Max Rs. 300 |
UPI < Rs. 2,000 | Nil |
UPI at Rs. 75,000 and above | Rs. 300 (Max) |
UPI Capital Markets | 0.02% - Max Rs. 300 |
UPI - Telecom, Railways | Flat Rs. 5 |
UPI - Insurance, Fuel | Flat Rs. 5 |
What About Consumers?
The government has emphasised that MDR is a merchant-side charge and cannot be passed on to UPI users. Customers will continue to pay the listed price for goods and services.
“No, merchants on-boarded cannot pass on MDR charges to customers while accepting payments through UPI. The framework ensures consumers pay only the posted price.”
There will also be no monthly quota or fee threshold for individual users. Daily transaction limits imposed by banks and NPCI remain security and risk-management measures, rather than charging thresholds.
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Why Introduce MDR?
The Ministry said the move is aimed at creating a more sustainable economic model for UPI as transaction volumes continue to expand.
UPI processed 2,451 crore transactions worth Rs 29.9 lakh crore in August 2026 alone, according to the government's FAQ. The MDR revenue is intended to support investment in payment infrastructure, cybersecurity, fraud detection, innovation and customer service.
A dedicated fund will also be created for small merchants, with an amount equivalent to 5% of total MDR collections earmarked for the initiative. The fund will support merchant onboarding and digital payment infrastructure, particularly in rural areas and Tier 3-6 centres.
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